OUTLOOK '14: US chem, refiner stock prices end year on high note

06 January 2014 16:00[Source: ICIS news]

HOUSTON (ICIS)--Stock prices for several North American petrochemical producers and refiners ended the year near 52-week highs.

Chemical stocks performed well in part because the overall stock market did so well. The S&P 500 rose from 1,466 at the start of the year to more than 1,800 in mid-December. The Dow Jones Industrial Average rose from 13,435 to more than 16,150.

Both indices reached all-time highs.

The Dow Jones US Chemicals Index also reached an all-time high at over 480 in mid-December, up from about 400 from the start of the year.

In addition to a rising stock market, petrochemical producers also enjoyed feedstock advantages.

The advent of shale gas has increased supplies of natural gas liquids (NGLs), which US petrochemical companies use as a feedstock. This gives them a cost advantage against much of the world, which uses oil-based naphtha instead.

Westlake Chemical, the largest pure resins producer by market capitalisation, traded near $114 (€83), close to its 52-week high of $117.98. Formulator PolyOne and compounder A Schulman were also near 52-week highs.

Dow Chemical started the year at $33.63 and hit a 52-week high of nearly $44 in mid-December. DuPont likewise hit a 52-week high of nearly $63 in mid-December, rising from $45.73 at the start of the year.

LyondellBasell is both a refiner and a petrochemical producer, and its stock also performed well in 2013, rising from about $58 at the start of the year to more than $78 in mid-December, close to a 52-week high.

At the start of the year, refiners such as Phillips 66 and Valero had profited from the gap between Brent and West Texas Intermediate (WTI). That gap had narrowed in the middle of the year − almost disappearing before widening again.

Regardless, US refiners have benefitted from rising US production of shale oil, and many have used rail cars to ensure they could receive the discounted product. Shale oil is light, and growing supplies have allowed some refineries to eliminate imports of light crude.

The new year will likely provide the US chemical industry with a faster growing domestic market and ever increasing energy production.

US oil production should continue increasing annually by an average of 800,000 bbl/day through 2016, when it will approach the all-time high of 9.6m bbl/day reached in 1970, according to the Energy Information Administration (EIA).

At the same time, low-cost natural gas has also given US producers an energy advantage as well.

Long-term, natural-gas production should continue increasing, with 2040 levels reaching 37.6 trillion cubic feet, up 56% from 2012, according to the EIA.

US producers are taking advantage of this cost advantage.

In 2014, the nation's chemical production should increase by 2.5%, the American Chemistry Council (ACC) said in its year-end situational report. That compares with 1.6% for 2013 and 0.1% in 2012.

This increased production boosted the US chemical trade surplus, the ACC said. In 2014, it will reach $7.7bn, up substantially from $2.7bn in 2013.

Although producers will look to foreign markets, the prospects at home should also improve in 2014.

The US GDP should grow by 2.8% in 2014, up from the 2.1% expected for 2013, according to a report by the National Association for Business Economists (NABE).

It is unlikely that the US will face another government shutdown or a possible default on federal debts in 2014, the NABE said.

The US contended with both, which slowed down growth.

On the other hand, the Federal Reserve has started to rein in its programme of quantitative easing in the first half of 2014.

Another headwind to growth will come from sequestration, or further reductions in government spending, the NABE said.